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Keep paperwork up to date, tell family about arrangements

Estate planning: the basics, new developments, red flags

Except for uncomfortable decisions, estate planning is relatively easy, experts say.

“I’ve found that women often drive their husbands toward estate planning, especially if they’re counting on assets to get them through retirement,” said Mark Massey, a partner in the law firm Massey, Higginbotham and Vise, P.A., in Jackson. “They often turn to estate planners who have kept up with new developments and can advise them accordingly.”

For example, changes in the estate law mean that for 2002 and 2003, the exemption amount is $1 million, said Nancy L. Anderson, CFA, president of New Perspectives Inc. in Clinton.

“This will gradually increase until estate tax is phased out in 2010,” she said. “This law change is seen as temporary, since, in order for the tax to remain repealed, Congress will have to approve this continuation and make it a permanent move. There is some thought that there will be compromise on the issue, and the amount may eventually be set at around $3 million.”

Anderson encourages clients to track down and give a reasonable value to all their assets as they plan.

“Remember to include insurance proceeds,” she said. “Amounts above the exemption for that year are subject to a tax of 49% for this year. This will gradually be lowered over the next several years. I discourage the use of insurance to cover estate tax, except in cases where the estate is composed of mostly illiquid assets. For instance, you may have a family farm worth $3 million. If you die, your heirs will have to sell part of the farm to pay the tax. But if you own $2 million in stocks and bonds, it’s no problem for the heirs to use those securities to pay the tax. A family farm has more value intact and has sentimental value. Stocks and bonds don’t.”

Anderson also advises clients with large estates to give away some of their assets while they are still alive. “While I want to make sure they are protected throughout their lives, I think there is a point when it is reasonable to make gifts during their lifetimes. This cuts the IRS out of the picture and allows the giver to see the results of the gift. Some clients give stocks (with low cost basis) to charities. Others will use programs like MPACT and MACS to set up education funds for grandchildren. One thing, now, heirs get a stepped up cost basis on securities. Once the estate tax is gone, heirs will ‘inherit’ the original cost basis. Talk about a nightmare as far as paperwork, trying to figure out what Aunt Sally paid for that AT&T stock before the spin offs!

“I insist that clients visit with an attorney and get all their wills/trusts/powers of attorney up to date. Make sure that someone in your family knows where to find all the paperwork and who to call if something should happen. Finally, I encourage my clients to inform their families of all the arrangements and express their wishes upon death. Sometimes, they don’t want to let Uncle Harry know he’s been cut out of the will. In that case, I assure them that taking the ‘easy way out’ might be the best move.

“After you’re dead and gone, who cares if Uncle Harry won’t speak to you?”

Doug McDaniel, CFA, president of EFP Inc., in Jackson, said many family disagreements concerning inheritance aren’t centered on “the big stuff,” such as money and investments, but around the “little stuff,” like dishes and family heirlooms.

“Consider downsizing your home and moving to a retirement community while you still have your health,” he said. “That way, you can divest yourself of ‘stuff’ evenly to your children…while you are healthy and lucid.”

The hottest topic in estate planning is asset protection, said Stacey Wall, president of Pinnacle Trust in Ridgeland.

“I would define asset protection planning as ‘the process of organizing one’s assets and affairs in advance so as to safeguard them from loss or dissipation by reason of potential threats or risks to which the assets would otherwise be subject,’” said Wall. “The potential threats or risks can take several different forms. Although the most common fear is being subjected to a lawsuit, careful planning can also protect one’s assets against forced heirship laws and unstable political structures. The organizational process also varies, depending on one’s goals, concerns and the type of assets. There is a continuum of asset protection tools ranging from simple joint ownership to sophisticated offshore trust arrangements.”

Asset protection is not hiding assets, last-minute creditor protection or tax avoidance, said Wall.

“Everyone is aware that today’s society is more litigious than ever before,” he said. “It is not uncommon to hear of multi-million dollar jury awards for seemingly frivolous claims. Potential plaintiffs, utilizing the services of contingent fee lawyers, often have little to lose by seeking a ‘deep pocket.’ Lawsuits can arise from many sources, such as professional or business activities, operation of a motor vehicle or property ownership.

“While insurance coverage can provide some protection, insurance is not always sufficient and often actually encourages claims. Many individuals spend thousands of dollars on traditional estate planning to ensure that their heirs will receive their property at minimal cost and maximum ease, but give little thought to safeguarding the assets during their lifetimes. They do not realize that without asset protection planning, there very well could be no estate left for the heirs to enjoy. Where appropriate, asset protection should be an integral part of estate planning.”

Massey said many people planning wills don’t realize that adding a child to a checking account entitles that child to the entire balance when they die.

“This sometimes gets them in a bind,” he said. “They’ll add a child to their checking account under the premise that they’re getting too old to take care of their affairs. They may not realize that when you make someone a joint tenant on your account, that joint tenant becomes owner of the property and doesn’t have to go through probate. Let’s say there’s a checking account with $50,000 and three children to split the proceeds. The child on the account may do the right thing and split the balance with the others. But what you run into sometimes is that kids are scattered from here to California and a trusted child has been taking care of the parent. That child may think, ‘mom knew exactly what she was doing and wanted me to have it because of everything I’ve done for her.’”

An alternative: signing a general power-of-attorney that allows the designee to write checks on the account, said Massey.

“Many times, they’ll have a will prepared that says ‘I give everything to my children of equal shares when I die,’ but jointly owned property is not part of the estate,” he said. “Anything owned jointly will automatically pass outside the probate process.”

A healthcare power-of-attorney, which only covers healthcare decisions, should also be done at the same time, said Massey.

“When naming an executor of the will, also name an alternate trustee because a lot of times, something happens to the executor before the person who made the will dies,” he said.

McDaniel suggested sitting down with someone other than your spouse, probably the executor or contingent executor of your estate, and telling them what you have and where it is, including life insurance policies, a lock box, an original will and trust.

“Make sure any IRAs, annuities, and life insurance policies owned by you or your spouse names the beneficiaries you intend to get this money,&#
8221; he
said. “With these three types of accounts, it doesn’t matter what your will says, the proceeds at death will go to the named beneficiaries.”

Transferring assets can be tricky, said Massey.

“Many times, you’ll see children trying to encourage mom to give them property, when she’s getting qualified for M


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About Lynne W. Jeter

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